Consumer Spending is Not Economic Activity

This morning the BEA released the December  report on personal income and outlays. This is what appeared on Reuters:

Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to rise 0.3 percent last month.

(my emphasis added).

No, no, no.  In a global economy, U.S. consumer spending does not necessarily translate into U.S. economic activity. If people are buying more imported television, cars, and clothing, you can get plenty of gains in U.S. consumer spending without corresponding gains in U.S. jobs.

This confusion between consumer spending and economic activity is not a harmless mistake. It goes right to the heart of the trade deficit, the budget deficit, and our inability to generate jobs.

Please note: I don’t mean to pick on Reuters.  But this is getting ridiculous.

About Michael Mandel 127 Articles

Michael Mandel was BusinessWeek's chief economist from 1989-2009, where he helped direct the magazine's coverage of the domestic and global economies.

Since joining BusinessWeek in 1989, he has received multiple awards for his work, including being honored as one of the 100 top U.S. business journalists of the 20th century for his coverage of the New Economy. In 2006 Mandel was named "Best Economic Journalist" by the World Leadership Forum.

Mandel is the author of several books, including Rational Exuberance, The Coming Internet Depression, and The High Risk Society.

Mandel holds a Ph.D. in economics from Harvard University.

Visit: Innovation and Growth

2 Comments on Consumer Spending is Not Economic Activity

  1. Also, it is important to understand how current consumption is being financed. If it is being done through wage growth, then that is generally positive for the economy. If it is done through the extension of unemployment benefits, then that’s another thing entirely. And if it’s being done with debt, then in theory we’re drawing forward future consumption. This is dangerous, although the music can continue playing for a long time, as we’ve seen.

    Looking at GDP in isolation is like evaluating a company simply by its income statement (which many “investors” are also prone to do).

Leave a Reply

Your email address will not be published.